+ Growing demand + disciplined capacity expansion = tight supply in 2015
Looking ahead into 2015, our global High Brightness LED supply/demand model suggests tight supply could continue, driven by rising demand and disciplined capacity expansion. We forecast HB LED area demand ('area' refers to the total chip space used to generate light) will grow 19% YoY, capacity will expand 16%, and the global LED supply sufficiency ratio will narrow further from 4% in 2014E to 2% in 2015E. We therefore remain positive on the global LED sector.
+ General lighting demand will remain the key growth driver in 2015E
General lighting demand grew strongly in 2014, driven by falling LED light bulb prices and more promotion from global LED vendors. Recovering economies in developed markets such as Western Europe and the US also contributed to rising demand.
On an annual shipment basis, we see scope for LED-based lighting products to reach 10-12% growth in 2014E (versus 4-5% in 2013), higher than our previous estimate of 7-8%. We expect the penetration rate to further increase in 2015 and general lighting demand to grow 38% YoY in 2015. I personal Doubt the figure has been exaggerated or not, I am it is about 25-30% at most.
+ Chipmakers are prudent in expansion, while packagers are more +aggressive
We estimate LED chip area supply will increase 16% YoY in 2015, mainly driven by Chinese chipmakers. However, Chinese chipmakers have just started to order equipment in H214 and we do not expect additional capacity to be ready until H215—hence, capacity could be even tighter in H115. Even with a ramp-up in capacity, we still expect tight supply in H215. On the other hand, as packaging companies are more aggressively expanding capacity, there could be higher pricing pressure for packagers in 2015E.
+ We remain positive on the global LED space
The aggregate PE and P/BV of our Buy-rated stocks recently fell sharply below their trading range (Figures 2-3)—this share price correction could provide an attractive buying opportunity for long-term investors as we expect fundamentals to further improve in 2015. We think the key risks to our views are: 1) excess capacity driven by more overly-aggressive expansion; and 2) weaker-than-expected general lighting demand due to a slow global economic recovery.LED Fever